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Free + Premium = Freemium

January 27, 2011

The wonderful world of free… sort of

In my social media class, we discussed freemium which is a new business model employed by many web start ups. Freemium is the combination of free and premium services to sustain a business.

In a freemium business model, the majority of a business’s customer base does not pay for content/services and only a small percent of users generate enough revenue to sustain the buisness.

Most freemium models start by acquiring a loyal customer base. Then they can add the ‘premium’ features which can be additional/unlimited services, lack of advertising, more storage, more mobile options etc.

Some industries have employed the freemium model better than others. Traditional print media started off by uploading all content for free onto their websites. However as they attempted to employ a freemium model with paywalls, they have met some resistance.

Image from brandingbrand.com

Now four years after New York Times paywall fail, New York Times is resurrecting it. However this time in an incremental payment scale. Hopefully New York Times can lead print media into the world of paid content. Other media like music and movies have slowly surpassed the cheapskate mentality.

Almost everyone has seen and used various Freemium models like Hulu, Pandora, Skype etc. Freemium models I use are Yousendit, Issuu, Pandora, Grooveshark, LinkedIn and WordPress.

The only premium service I’ve bought is through skype when I was in London to make phone calls to America.

I believe that the trust and usefulness users generate from the free model will ultimately lead to them becoming a premium model, IF the motivation is there. I’m an avid user of grooveshark.com but at first their premium model was lacking. They incentive was no visual ads, which are relatively unobtrusive with the free model.

Since I last saw their lackluster premium model, it seems that they have developed an app for blackberries (maybe ipads?) which allows users to use their service without the internet. I believe smartphone users are more likely to purchase content like apps as opposed to web users who aren’t as likely (or wealthy) to purchase content.

For more information: http://www.readwriteweb.com/archives/grooveshark_launches_subscription_vip_service.php

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